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The billable hour is a trap into which more and more of us are falling

timharford.com

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Re: The billable hour is a trap into which more and more of us are falling

#161

Post by edanm »

tptacek wrote: post #103

I've been beating a related drum on HN for years, about billing hours, and I'll try not to repeat too much of it: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... I know this post is mostly not about billing strategy (though that's what the thread is now about), but I'm going to chime in with a simple bit of advice for tech workers that I believe is universally applicable: Bill days, minimum. A lot of…

I co-built and ran a successful consulting company that was sold to a client many years ago, am now running another successful consulting. So I've been at this game for many years.

And for what it's worth, tptacek's advice on billing, especially this advice on billing daily, is one of the foundations of our success in this business. When we were just getting started, a lot of tptacek's advice helped us to learn and grow what we are doing, and I don't think we would've been anywhere near as successful in growing, or in understanding the business, without it.

Billing daily is a no-brainer. Almost every client is absolutely fine with it. This depends somewhat on the exact field and the exact client base you have, but if they're not fine with it, it's a sign that you're targeting bad clients and should change your aim.

Re: The billable hour is a trap into which more and more of us are falling

#162

Post by kqr »

orthecreedence wrote: post #54

Salary incentivizes the employer milking every last hour from the worker. Hourly incentivizes the worker to work slower. Project-based incentivizes the worker to cut corners and get things done as fast as possible. It seems like the optimal setup is some mix of these: retainer plus low hourly plus bonus on project completion.

There's another alternative: profit sharing.

Re: The billable hour is a trap into which more and more of us are falling

#163

Post by yesenadam »

gnicholas wrote: post #27

Another downside of the billable hour: it encourages perverse incentives. I was recently talking with a potential customer in the legal field, and he was interested in my startup's software, which helps people read on screen more quickly/easily. But at one point he turned to me and said "I know one of the senior lawyers is going to ask me if using your software is going to cause the billable volume to go down for the…

...that kind of surveying which I could do with most satisfaction my employers do not want. They would prefer that I should do my work coarsely and not too well, ay, not well enough. When I observe that there are different ways of surveying, my employer commonly asks which will give him the most land, not which is most correct. I once invented a rule for measuring cord-wood, and tried to introduce it in Boston; but the measurer there told me that the sellers did not wish to have their wood measured correctly- that he was already too accurate for them, and therefore they commonly got their wood measured in Charlestown before crossing the bridge.

- Henry David Thoreau, from Life Without Principle, 1863

https://xroads.virginia.edu/~Hyper2/thoreau/life.html

Re: The billable hour is a trap into which more and more of us are falling

#164

Post by ernirulez »

I have to say something good about billable hour: it made me value my time more. I used to work as a freelancer in tech, so I had to bill my time. I was billing my time at 50€/hour. Out of work, when I was doing something I liked, I didn´t think of the price of my time, but when I had to do something I didn´t like I thought "would I do this if I was payed 50€/hour?" Depending on the answer, I would try to leverage that.

Since then I try to make the most of my time. Not only my personal time alone, but also I think about who I spend my time with. Apart from my parents, my wife and my daughters (which is always a very valuable time) I try to spend my time only with people who provides value to my life, and I try to avoid people who don´t.

One example: 2 months ago my father died. We used to spend time together, less than I would have liked when I think of it now, but back then I was not that aware of it. I remember we would go work on the fields growing vegetables, collecting olives and trimming the trees. I remember one day that I was a bit tired when we were setting up a new land and trimming some very old, mostly useless, olive trees, so I asked my father (in a rude way):

- "why are we doing this? why are we wasting so much time and doing so much effort just to clean some old trees that will hardly provide enough olives to make a few olive oil litres?

His answer was so clear, emotional and bonding that still hurts me today. He answered:

- What? Who cares about the trees? The important thing is the time that we are spending together.

I would have never thought that now, I would pay several thousands just to spend a single more hour with him.

Re: The billable hour is a trap into which more and more of us are falling

#165

Post by matheusmoreira »

gnicholas wrote: post #27

Another downside of the billable hour: it encourages perverse incentives. I was recently talking with a potential customer in the legal field, and he was interested in my startup's software, which helps people read on screen more quickly/easily. But at one point he turned to me and said "I know one of the senior lawyers is going to ask me if using your software is going to cause the billable volume to go down for the…

> using your software is going to cause the billable volume to go down

Yeah, that's a huge concern. If they get paid for literal hours, then they're directly incentivized to maximize hours.

Software is highly effective when you get paid for productivity: hourly rate scales with efficiency. I want to reduce the hours I spend working so I can go back to enjoying my life as soon as possible.

I wrote my own software to track my process and compute statistics so I could identify bottlenecks and opportunities. Essentially a profile-guided optimization run on my job which doubled my hourly rate and got me home faster.

Re: The billable hour is a trap into which more and more of us are falling

#166

Post by ornornor »

tptacek wrote: post #158
shkkmo wrote: post #150

Earlier quoted context omitted.

It also makes on fly design changes harder and makes managing scope creep critical.

Not really. You can bid a project-priced project with T&M overages, which is what every project at Matasano did; Matasano was founded by @stake people, which is where we got our project structure from; @stake was Cambridge Technology Partners people, which is presumably where they got it from; and so on down the line all the way back to, I assume, Samuel Adams or Patrick Henry or some other famous Bostonian who came…

I think the difficulty in software comes from the fact that it’s very hard (impossible?) to provide estimates because you never know what problems you’ll run into until you do. And so how can you tell “project will take 8 weeks, times weekly rate, for a total cost of X” under these conditions?

Re: The billable hour is a trap into which more and more of us are falling

#167

Post by herewulf »

kposehn wrote: post #55
spyke112 wrote: post #17

Earlier quoted context omitted.

Would you mind giving an example of how exactly you would bill your client, what does a “retainer block” mean?

* A retainer block is a fixed price for up to a certain number of hours per week, usually 10 hours and clients can buy multiple blocks. There are four blocks in total (all sold currently) * The client pays this amount regardless of how much time is worked * The advantage for the client is they have this time available to them and them alone - no one else will take it since it is already sold * The limit of hours per…

I must say as an hourly based freelancer (software engineering) for the last six years, I don't like this. One of the biggest perks is the flexibility to take time off whenever I want. If I don't work a full day in order to spend time with my kids outside because the weather is nice, then I do. If I want a day off, then I take it. As long as my projects are making progress or I give advance notice of long vacations, then my clients stay happy.

That said, I'm not fixed on the billable hour which is why this article and comments are so interesting. So, I do thank you for sharing your method.

Re: The billable hour is a trap into which more and more of us are falling

#168

Post by matheusmoreira »

ernirulez wrote: post #164

I have to say something good about billable hour: it made me value my time more. I used to work as a freelancer in tech, so I had to bill my time. I was billing my time at 50€/hour. Out of work, when I was doing something I liked, I didn´t think of the price of my time, but when I had to do something I didn´t like I thought "would I do this if I was payed 50€/hour?" Depending on the answer, I would try to leverage th…

Learning about billable hours was a revolution for me. It changed how I looked at everything. It's such a simple concept, dollars per hour of work or $/h. Then I started maximizing the dollars and minimizing the hours worked.

Time is the most precious thing to me now. I want to spend it enjoying my life and the people I love. I selected my job for the highest $/h ratio rather than highest salary.

Re: The billable hour is a trap into which more and more of us are falling

#169

Post by tuukkah »

ornornor wrote: post #166
tptacek wrote: post #158

Earlier quoted context omitted.

Not really. You can bid a project-priced project with T&M overages, which is what every project at Matasano did; Matasano was founded by @stake people, which is where we got our project structure from; @stake was Cambridge Technology Partners people, which is presumably where they got it from; and so on down the line all the way back to, I assume, Samuel Adams or Patrick Henry or some other famous Bostonian who came…

I think the difficulty in software comes from the fact that it’s very hard (impossible?) to provide estimates because you never know what problems you’ll run into until you do. And so how can you tell “project will take 8 weeks, times weekly rate, for a total cost of X” under these conditions?

A project can have fixed time and cost, but you won't know what the results will be. Hopefully you can define the project so that complete failure is highly improbable.

Re: The billable hour is a trap into which more and more of us are falling

#170

Post by wodenokoto »

ernirulez wrote: post #164

I have to say something good about billable hour: it made me value my time more. I used to work as a freelancer in tech, so I had to bill my time. I was billing my time at 50€/hour. Out of work, when I was doing something I liked, I didn´t think of the price of my time, but when I had to do something I didn´t like I thought "would I do this if I was payed 50€/hour?" Depending on the answer, I would try to leverage th…

I agree. And it goes both ways.

If you have a guy being paid $100/hour to upload some CSV files and clean their header names and rename them, it is very easy to see just how much you can save by automating that task.

When personnel are salaried, it is easier to forget that their time costs money. Double so for overtime. When salary includes OT, there is no short term reason to have your staff work efficiently. Just have them work another hour - the marginal cost is free!

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